In Other News – May 8, 2020

The European Commission forecasts a 7.4% drop in economic growth this year, which would mark the worst contraction for the continent since World War II, dwarfing the 4.5% contraction of the 2009 recession. And the EC has warned that its forecast may underestimate this year’s actual drop in GDP. Italy, Spain, and Greece are expected to be hardest hit, but unemployment will rise throughout the bloc, averaging 9%, according to the EC’s projections. If history is any guide, we have cause for concern that harsh economic conditions and the feelings of insecurity that accompany them can give rise to struggles over limited resources and the rise of troubling political movements. That risk is not confined to Europe. As we move into this period of prolonged uncertainty, the soundness of our allies’ institutions will be critical to keeping them on track for a return to stability. And from a trade standpoint, coordination – not conflict – will be key to spurring a faster rebound on both sides of the Atlantic.

Indian security forces killed Riyaz Ahmad Naikoo, a senior leader of militant Kashmiri separatist group Hizbul Mujahideen, setting off violent protests that injured more than a dozen people. The status of Kashmir has long been a hot-button issue between India and Pakistan – and between Kashmiri separatists and Delhi. Violent attacks in the region were almost commonplace, but ebbed in late 2019 and early 2020 after India revoked Jammu and Kashmir’s decades-old special constitutional status and imposed a months-long security crackdown and communications blackout that appears to have deterred separatist activity. However, the harsh measures employed by India’s central government have also drawn international condemnation of Delhi’s tactics and further fueled separatist sentiment in Kashmir. While India sees Naikoo’s death as a victory, it is also likely to spark at least a temporary escalation of militant attacks as the country grapples with a sharp rise in Covid-19 cases.

U.S. and Chinese officials have confirmed their commitment to the bilateral trade deal following President Trump’s threat to terminate it if Beijing wasn’t upholding its end, though the president cast further doubt on its future in an interview this morning. The two sides negotiated the first phase of the deal in January after a two-year trade war that inflicted damage on both sides. China’s obligations require it to buy an additional $200 billion of American goods over 2019-2020, a target that was seen as potentially out of reach even before the Covid-19 pandemic triggered months-long halts to economic activity in major growth centers in both countries. Since the deal was signed, Chinese imports of U.S. goods have actually fallen. Though the pandemic has undoubtedly played an outsized role in the U.S.-China trade trajectory, the optics of China failing to meet purchasing targets are poor, especially with tensions on the rise between the two countries in other areas, including China’s role as the origin of the virus. Conditions on the ground may not allow for strict adherence to the terms of the deal, but scuttling it would inflict yet more economic pain on both countries as they endeavor to get growth back on track.

Russian billionaires are backstopping the government’s lackluster Covid-19 response after two decades of lying low to avoid attracting the eye of the state. The election of Vladimir Putin as president in 1999 ushered in a period of consolidating wealth and clout from powerful oligarchs that emerged from the wreckage of the dissolution of the Soviet Union. Since then, with a few high-profile exceptions, the country’s oligarchs have toed the Kremlin line and steered clear of wading into matters of state. But Putin has taken little action to stem the spread of the virus in Russia, which has now infected ~177,000 and killed ~1,600 (though actual counts are likely much higher), and the country’s health care system is underfunded and ill-equipped to handle the outbreak. So these modern-day boyars are deploying funds, as well as corporate logistics and purchasing capacity, to help fill the gap. Putin’s approval rating has hit its lowest since 1999 in a recent poll, at 59%. There is little risk of regime change in Russia, and support is still strong for constitutional changes that would allow Putin to remain in power past the end of his current term. But as the Covid-19 pandemic upends the world as we know it, there may be scope for the beginnings of a rebalancing of interests in a flailing Russia.